Weekend Update - 2000 NDX vs. 2010 SPX

Edit: A pretty lengthy post today... didn't realize how long it was until I actually finished. Goes down to about half way down the page... have fun scrolling down. :)

Today's chart should speak for themselves. I guess a picture is worth a 1000 words.

Just over 10 years ago, we experienced one of the biggest bubbles followed by one of the biggest crashes in stock market history, lead by the Nasdaq of course. Today, we hear and see a lot of comparision to the period of 1929-1932, and how the charts look so familiar and how we seem to be following a very eerie and similar pattern. While that may be true, I find it shocking that we have not seen too much comparision to the Great Tech Bubble. I don't know how many traders who trade today actually traded in 1929, but I am sure a majority of them were around in 2000-2003. But how soon we forget the horror of that time period, despite it being just a mere 10 years ago.

The point I am trying to make is that the pattern we have experienced since the highs this April is almost a mirror image of the pattern that the Nasdaq experienced in the Spring/Summer of 2000, almost the same time of year as this recent move. My first couple of charts show the similarity between the two patterns in a "zoomed in" view so we can see the wave patterns more clearly.

Here is the SPX today:

Pretty straight forward if you ask me. A leading diagonal down from our highs, followed by an a-b-c correction that is getting pretty extended and starting to look toppy.

Here is the Nasdaq is Spring 2000:

Look familiar? Well, it should... it's the same pattern. Leading diagonal down from the highs, followed by a pretty lenghty and extended a-b-c corrective pattern. I have labeled the trading days between each high and low to give a time perspective on impulse vs. corrective waves. Sometimes markets correct via time and some times via price... and sometimes it needs to do both.

Anyways, it takes a couple of looks at those charts to actually comprehend how similar those patterns are. Obviously not every bar looks the same, and that is not what we are looking for. But the overall pattern looks like a mirror image. The time that each wave has taken is just about the same too. Sometimes I think we are now following a more similar pattern to 2000-2003 than we are to 1929-1932.

Now for the more scary part. The bigger picture, zoomed out to see the full pattern. I will first show you the Nasdaq.

Here is the Nasdaq from 2000-2003:

At the top left, that is the same pattern I showed you earlier, just zoomed out to see the entire Tech Bubble collapse.

Now here is the SPX today:

Again, the pattern at the top left looks almost the same. The only difference between the 2 charts is that the data for the next 3 years of the SPX isn't out, yet. However, if this pattern does continue to play out like the Nasdaq did in 2000, then we can make a pretty valid prediction for what is to come.

Again, I had to look at those 2 charts a few times to actually understand the similarity of what is going on. Honestly, it is very rare to see patterns repeat like this. I know history does repeat in some way or the other, but it being this similar? Not often does it happen.

These are just my thoughts, it may or may not happen... but it is good to be aware of possible scenarios that could happen. Also, the way things seem to be going, I have a feeling that this may happen. Bullishness is again getting to an extreme point. Have you seen charts for AAPL, AMZN, NFLX or PCLN? Absolutely insane. AMZN was trading in the lower 100's just about 2 months ago, after it sold off hard on earnings. 2 months later, it's trading over 160. A 60% move in 2 months backed by NOTHING. Don't even get me started on AAPL. The bottom line is that some of these stocks are again experiencing bubble like moves. 50, 60, 70% moves in a matter of weeks, backed by nothing but speculation. No news, no earnings... nothing.

Here is a quick chart on the SPX. We can see some key trendlines and price points converging here. There is some pretty heavy resistance in the 1150 area. That will be they key pivot point for this coming week. 1115-1120 is the key area to the downside.

The Dow looks nearly identical to the SPX, however it has already tagged some key resistance.

On the smaller time frame, I have gone back to the expanding ending diagonal I posted about a few days ago. 1150 could be tested.

We are in historic times, and this will produce historic moves in the markets. Just be prepared for whatever is to come. For next week, it will be key to watch the futures when they open on Sunday night as they could tell us a lot for possible action on Monday. Watch those pivots and those trendlines. Good luck!